Public Service Co. v. Public Utilities Commission , 142 Colo. 135 ( 1960 )

Mr. Justice Hall

delivered the opinion of the Court.

On June 30, 1955, Union Rural Electric Association, Inc., a Colorado nonprofit co-operative corporation, herein referred to as “Union,” filed with the Public Utilities Commission of the state of Colorado, herein referred to as “PUC”:

1. Its application for (a) a certificate of public convenience and necessity to serve with electrical energy an area around Brighton, Colorado; (b) for clarification and ratification of its existing rights to serve such area and for extension of service in such area; and

2. Its complaint against the Public Service Company of Colorado, herein referred to as “Public Service,” wherein Union complains to PUC of alleged unauthorized invasion by Public Service of Union’s service area and other alleged illegal acts of Public Service.

On September 22, 1955, Public Service filed its answer to Union’s complaint, urging dismissal thereof, and on the same day filed its protest to Union’s application, urging dismissal thereof. Colorado Central Power Company, herein referred to as “Central,” filed its protest to Union’s application, urging dismissal thereof. Neither Public Service nor Central requested affirmative relief.

Prior to taking testimony, PUC divided Union’s application into two parts: “Application No. 13576,” being Union’s request for authority and clarifications, and Case No. 5108, being Union’s complaint against Public Service. Application No. 13576 and Case No. 5108 were consolidated for the purpose of taking evidence. Hearings consumed seventeen days, and spread over the period from September 27, 1955, to September 5, 1956. The testimony consists of over 1500 pages. There are nearly one hundred exhibits. PUC took the matter under advisement and on January 7, 1957, two members of PUC made thirty-three pages of findings, conclusions of law, and entered its order, Decision No. 47074. ..The third member filed a dissent.

All parties filed petitions for rehearing, pointing out alleged gross errors of PUC in resolving questions contrary to their respective interests and contentions. These petitions were all denied.

The matter was presented to the district court for review by certiorari, each party seeking reversal of some portion of PUC’s orders. The district court affirmed Decision No. 47074 in all respects. All parties are here by writs of error, each seeking reversal of some part of the judgment of the district court! We are favored with nine different, carefully prepared briefs, voluminous, exhaustive and exhausting.

There is little, if any, conflict in the testimony, and none on essential facts.

Public Service and Central and their predecessors in interest had for many years prior to 1936 (the year the Rural Electrification Administration, hereinafter referred to as REA, was created), been engaged as regulated utilities in supplying among other services, electric service to Denver and to various points in Boulder, Gilpin, Jefferson and Adams Counties (these counties include the area involved herein), which service Public Service and Central claim was rendered in conformity with numerous certificates of public convenience and necessity issued by PUC and the general provisions of the utility laws of the state of Colorado.

Public Service and Central had filed with and had approved by PUC rates for various services rendered and to be rendered in the area involved herein; also charges and terms for extending their facilities to any prospective consumers in said area. Public Service and Central have invested millions of dollars in erecting facilities in the area and to render service therein, all with the sanction and approval of PUC, and have at all times had ample power and facilities to serve the area and have at all times prepared in advance with additional power and facilities adequate to meet any reasonably anticipated increased demands for service in the area.

The record discloses the fact that prior to 1936 large sections of the area and numerous rural residents therein were not being supplied with electricity, the principal reason therefor being the costs of wiring their premises and costs of extending lines into thinly populated areas, which costs had to be paid by the consumers. One reason the costs then appeared prohibitive was the prevailing low incomes of rural residents.

With this background in mind, we find that on May 20, 1936, Congress created the Rural Electrification Administration, an agency of the Department of Agriculture (Title VII ,USCA 901-915):

“ * * * for the purpose of financing the construction and operation of generating plants, electric transmission and distribution lines or systems for the furnishing of electric energy to persons in rural areas who are not receiving central station service * * * .” (Emphasis supplied.)

Throughout the act we find wording which clearly sets forth that the underlying purpose of the act was to make electrical energy available to persons living in rural areas to whom electric energy was not available from central stations of public utility companies.

In 1938, a number of persons living in the area in question formed Union, a nonprofit co-operative corporation, for the purpose of furnishing electric energy to unserved persons in the area and to take advantage of the various subsidies made available by REA. With money, all borrowed from REA, Union constructed a substation and distribution lines, and with power purchased from Public Service, pursuant to contract, commenced serving rural area persons in 1940. Union’s certificate of incorporation expressly stated in Article 2 that:

“ * * * the object or objects and purpose or purposes for which the corporation is formed are: (a) to generate * * * electric energy for its members only and to transmit and distribute * * * such electric energy to its members only * * *; (c) to assist its members to wire their premises * * *; (f) to do and perform either for itself or its members * * *. The Corporation shall render no service to or for the public.” (Emphasis supplied.)

The original by-laws of Union clearly state that Union will serve its members only, that it will not serve the public. Acceptance by Union of an application for membership and issuance of a membership certificate constituted a contract between Union and the member. Terms of the articles of incorporation and the by-laws dealing with such matters as changes in rates, disposition of profits (which this nonprofit organization elects to call “net margins”), minimum monthly charges, the duty of members to purchase all electric energy used on their premises from Union, the lack of duty on the part of Union to supply all of the needs of its members, withdrawal and expulsion of members, accounting practices as designated by REA, ninety days’ notice to REA of any proposed changes in rates — terms all of which are foreign to public utility status and operations — constituted a part of the contracts existing between Union and its members and now remain as a part of Union’s by-laws and its contracts with its members.

Union from its incorporation in 1938 until May 28, 1955, conducted its affairs pursuant to and in conformity with its articles of incorporation and by-laws, as above set forth; it offered to serve and served its members only. During this period Union repeatedly, and without exception, in court proceedings and proceedings before PUC, went on record as not being a public utility, and successfully questioned the jurisdiction of PUC to exercise any control over it or to regulate its activities in any manner.

In May of 1955, Union amended its articles of incorporation by deleting therefrom the statement: “The Corporation shall render no service to or for the public,” and by altering its original avowed purpose to serve “members only” to read “members and customers.” Similar changes were made in the by-laws. The total effect of the changes was to grant to Union charter and by-law authority to serve the public —1 none of the other restrictions and limitations placed on Union or its members, as outlined above, was lifted or altered.

Within a month after making these article and by-law changes, Union filed its complaint and application herein.

Union now unblushingly claims that it has been a public utility from the date of its first business in 1940. It asks to be judged on the basis of what it did, even though contrary to its charter, its by-laws, its loan agreements with REA and, if it were a public utility, in violation of the laws of the state of Colorado, rather than on the basis of what it was authorized to do by its articles and by-laws. It asks that this court ignore the so-called “charter test” and follow the so-called “factual test” in deciding its status during this period prior to amending its articles.

PUC in its opinion in dealing with this problem, in disposing of Union’s complaint against Public Service, said:

“Union argues that in deciding when its facilities became so devoted to public benefit as to warrant protection, notwithstanding that its charter prohibited it from serving the public, we should not limit our consideration to the charter, but should consider all the facts of its operation. To buttress its ‘factual test,’ it cites many authorities, including two Colorado Supreme Court decisions, which say, on this point, that the substance of the operation, and not the form of the charter, is controlling. In this case, however, the form and the substance are alike; Union did not at any time, at least before October 17, 1955, at the earliest, ever hold itself out publicly as being willing to serve the public, as distinguished from its members. Its claim that it served the public is not borne out by the evidence. Instances of its attitude and actual practice prior to 1955 are above referred to. In addition, its manager in this proceeding re-affirmed its practice. When Union changed its rate structure in 1950, it did not file its rates with the Commission ‘as we were serving members only at that time.’ ”

Union’s manager testified: “Q. Then you didn’t hold yourself out to serve the public indiscriminately, did you? A. We held ourselves out to serve anyone who wanted service and who would become a member. Q. That was a condition, that they become a member? A. That is correct. Q. Did you serve any non-members at all at any time? A. None at all.”

PUC further said:

“Counsel for Union says the same, but in a different way: ‘Union has actively solicited all possible business in its area from the start and has made ‘membership’ a most simple and almost automatic procedure.’ (Emphasis supplied.)

“The cooperative does not say that it held itself out as willing to serve the non-member public. Its claim rests entirely upon the assertion that it never refused membership to anyone, although it concedes it could have. It will thus be seen that on a single set of facts, this cooperative, in 1948, claimed it was not,a public utility, and now claims that it is. This does not relieve us of the burden of determining the truth of the matter; it does leave the co-operative in a rather poor position to deny that we are right. Our view is the same as that of our Supreme Court in the recent case of Parrish et al, v. PUC: [134 Colo. 192, 301 P. (2d) 343)

“ ‘The service to each customer is a permissive service, which creates the distinction between a public utility or a private carrier. The record discloses no dedication of the pipe line by Cobb to the public service, and, as was determined in the City of Englewood v. City and County of Denver, supra [123 Colo. 290, 229 P. (2d) 667], this can never be presumed, but must be supported by evidence of an unequivocal intention to make such a dedication ... We have no testimony to the effect that Cobb ever made any semblance of an offer to serve the public. The fact that he testified that he never refused a tap to anyone does not change his status.’

“Nor do we believe that the act of changing the charter changed Union’s status. This was a private act, taken within the corporation. At most, it only authorized the corporation to serve the public; it did not require such service. It did not amount to a dedication of its property to the service of the public. In Colorado Utilities Corporation v. P.U.C., et al, [99 Colo. 189, 61 P. (2d) 819], it was sought to compel a coal company which sold, on a dump basis only, any excess power it generated, to serve as a public utility. Our Supreme Court, in finding that the Respondent could not be compelled to serve as a public utility, said:

“ ‘Moffat Coal Company, under its amended charter, had the power to generate and sell electrical energy, but by such charter it did not have express power to do so as a public utility. However, had its charter contained such express provision, it would not necessarily follow that it is a public utility bringing it within the statutory definition of that term, unless it so acted’;

“In the present case, authority to serve the public prior to the 1955 amendment of its charter, could not even be implied; it was expressly prohibited. There is no evidence that Union took any action between the date its charter was amended and the date the application was filed, to indicate publicly a willingness to serve the public. Even the carefully worded application, filed June 30, 1955, says only that the cooperative ‘can now render service to a customer who does not desire to become a member;’ nowhere does it say that the cooperative is willing to serve such a customer. It was not serving any on October 17, 1955; the first evidence of serving such a customer was as of February 16, 1956. There being no evidence of a declaration or other public holding out to serve, we must rely on the fact of serving as evidence of the intention. We conclude that the first occasion upon which the cooperative held itself out to the public as being willing to serve the public occurred sometime between October 17, 1955 and February 16, 1956. This holding out, of course, goes simply to show one of the requirements for utility status: intention and willingness to serve. This qualification, standing alone, is not sufficient to endow a company with the protection of statute, as is noted below.

“It is argued elsewhere that the cooperative cannot become a utility, as illegal operations do not justify the granting of a certificate. Our conclusion is that the cooperative did not operate illegally as a utility; it did not operate as a utility at all, until recent date.”

We concur in the conclusion of PUC that Union, at the time it filed its complaint and application herein (June 30, 1955), had not been and was not then a public utility as defined in and contemplated by the statutes of the state of Colorado, C.R.S. ’53, 115-1-3, concerning public utilities.

This conclusion finds ample support in the evidence presented and the following decisions of this court: Colorado Corp. v. Utilities Com., 99 Colo. 189, 61 P. (2d) 849; City of Englewood v. Denver, 123 Colo. 290, 229 P. (2d) 667, and Parrish v. PUC, 134 Colo. 192, 301 P. (2d) 343.

In view of the fact that Union had not, at the time it filed its complaint against Public Service, acquired public utility status, it was in no position to complain that Public Service was invading its service area, for, not being a public utility, it had no service area.

That portion of PUC order and that part of the district court judgment holding that Union had no public utility status at the time it filed its complaint and dismissing Union’s complaint against Public Service in Case No. 5108 is correct and is affirmed.

We now turn to Union’s application for a certificate of public convenience and necessity and PUC’s order granting the same.

PUC decided that Union had acquired public utility status sometime between October 17, 1955, and February 16, 1956. It stated that during that period of time arose “ * * * the first occasion upon which the Co-operative (Union) held itself out to the public as being willing to serve the public * * *.

“We are now issuing Union a certificate; it thus becomes entitled to protection from here forward.” (Emphasis supplied.)

In view of the fact that Union desires a certificate with its attendant protections and obligations, the further fact that from the record, briefs and arguments presented by Public Service and Central, it appears that neither objects to, but rather welcomes, the granting of such certificate to render service limited in scope, we find no reason for disturbing this ruling, though it does appear that Union is discriminating against customers and in favor of members, and its by-laws contain many provisions, as outlined above, that are at variance with public utility operations and may well have to give way to proper regulatory orders of PUC. Now that Union is subject to regulation, such discrimination and other matters pointed out as being contrary to the basic concept of public utility operations can be corrected and eliminated by PUC under its regulatory powers, as set forth in C.R.S. ’53,115-3-2.

We approve of and affirm the action of PUC in granting to Union as of January 7, 1957, a certificate of public convenience and necessity only insofar as it grants to Union authority to render, as a regulated public utility, electric service to its then members and customers, save and except members and customers residing in incorporated towns and cities and in the boundaries of areas previously certificated to Public Service and Central, and to increase the volume of energy it delivers to any then connected member or customer. The PUC may well have concluded that proof of rendition of this service for a long period of time was sufficient proof of public convenience and necessity to warrant the issuance of a certificate to continue the service except for that portion ordered discontinued and the removal of facilities.

PUC directed Union to remove its facilities from (a) incorporated towns and cities in the area; (b) those portions of the area previously certificated to Public Service and Central or their predecessors in interest. Union contends that, even though it may not be entitled to serve in these areas, PUC had no authority to order removal of its facilities, and points out that at least a portion of the facilities ordered removed are an integral part of its electric system and necessary to render service to its present members and customers.

The legislature has granted to PUC very extensive and broad regulatory powers including the power to designate location of facilities and also relocation or removal thereof. C.R.S. ’53, 115-4-2; 115-1-1; 115-5-3. In exercising this power, as in the exercise of any other power granted to PUC, the interests of the public should always be given first and paramount consideration. We feel that the record does not disclose facts which warrant this broad order of removal. Public interest would best be served by an order directing discontinuance of service by Union in the specified areas and removal by Union from said areas of such of its facilities as in any way deter the certificated utilities serving such areas from rendering adequate economical and efficient service thereto.

Though hearings before PUC continued for a year and all parties were granted wide latitude in offering oral and documentary evidence in support of their respective contentions concerning the rights of the parties to make further extensions of facilities and services in the area, PUC made no complete or final determination of that question, but left the question unresolved and subject to piecemeal solution by requiring the interested parties to make application for authority to make specific extensions. PUC stated and held that:

“No showing of public convenience and necessity has been made, sufficient to warrant setting aside an exclusive service territory for Union * * *.

“We find that the cooperative has failed to show by its evidence that the public convenience and necessity require, or will require, that it be assigned an exclusive service territory; or indeed that the public would benefit at all from such an assignment.”

Such holding is in harmony with the record before us; in harmony with all of the testimony heretofore referred to that the area was virtually 100% served; in harmony with the testimony of Union’s manager that:

“I can state it this way: That every bit of our lines were in areas where there were utilities (Public Service or Central).”

It is in harmony with PUC’s statement in granting Union public utility status that:

“If it (Union) would enter the field it must recognize that others (Public Service and Central) are already there; it must find its place from among the places that remain.” (Emphasis supplied.)

Clearly there were no “places that remain” at the time Union acquired public utility status.

Union contends that Public Service and Central had authority to serve only those areas certificated to them and within the boundaries as set forth in the certificates. Such contention is contrary to the statutes of the state of Colorado and the holdings of this court.

Long prior to Union’s birth, Public Service and Central were certificated public utilities rendering service in the area. They, in addition to the authority set forth in their certificates, had the statutory authority to extend their facilities:

“ * * * into territory, either within or without a city and county or city or town, contiguous to its facility or line, plant or system, and not theretofore served by a public utility of like character * * * .”

C.R.S. ’53, 115-5-1.

There can be no doubt that it was the policy of the legislature to make available, at reasonable rates, regulated utility services to the people of the state, and the only limitation placed on expansion into contiguous territory by a certificated utility is that it not expand into an area “theretofore served by a public utility of like character.”

As pointed out above, at the time Union acquired public utility status, the area was already completely served by extensions made by Public Service and Central. Extensions made by Public Service and Central, during the time Union was serving members only and holding itself aloof from all control and regulation by PUC, were authorized by statute and valid — they were not extensions into an area “theretofore served by a public utility of like character,” for Union was not a public utility of any character.

In Utilities Commission v. Loveland, 87 Colo. 556, 289 Pac. 1090, this court said:

“ * * * The record clearly shows, at least the Utilities Commission so found, and properly so we think, and the trial court so determined, that the field or territory which the city attempted to monopolize outside of its own municipal boundaries was just as contiguous to the pre-existing facilities of the Public Service Company as to those of the city. The Service Company was first in the field. The very object of the provisions of the statute applicable here was to prevent, in the interests of the general public, unnecessary duplication of facilities or systems for furnishing the same to customers. When the city became a public utility under the statute, it had no superior right as to territory outside of its municipal boundaries over the rights of any other public utility, private corporation or otherwise, authorized to furnish service.”

In South Suburban Motor Coach Co. v. Levin, 269 Ill. App. 323, the court said:

“We think it was not the intention of the legislature to restrict complainant’s field or territory to the precise and specific streets and highways named in the certificates. On the contrary, it would seem that necessarily such field or territory must extend to a reasonable distance on each side of its route and beyond its terminal points * * * .

* ❖ *

“We recognize the difficulty of determining by exact definition the meaning of the word ‘field’ or ‘territory’ as applied to operators of public utilities, but defendant does not claim to be a utility at all, and if he did so claim complainant as the first in the field should be given an opportunity to supply any needed service before any other is given the privilege of competing with it. Egyptian Transportation System v. Louisville & N. R. Co., 321 Ill. 580. Any other rule would make it possible to destroy the established utility which it is the very purpose of the act, as we understand it, to protect from destructive competition. Chicago Rys. Co. v. Commerce Commission, 336 Ill. 51.”

The following language of the Court of Appeals of the state of Missouri is singularly applicable to the case at bar:

“ £ * * * We cannot now after years of diligent regulation permit a company, which through its predecessor, mutual company, by the expediency of unregulated service, by its own method of operation and lesser rates, build itself to important size, and then come before the Commission and urge public convenience and necessity to the detriment and damage of the regulated utility, which down the path of years has been regulated and supervised under the Public Service Law and its property dedicated to public use, without showing that the public utility in the field has failed in the discharge of its duty as above outlined. * *

“ * * * By the purchase, or conversion to a corporation, the applicant acquired no more than what the Mutual Company had a right to sell, and when the applicant desired, and undertook, to extend its activities and services into the field of a public utility, it must prove that there existed a public necessity for such service in the area it proposed to serve; and since that area was already being served by a public telephone utility, it was necessary for applicant to prove that the service of that utility was not reasonably adequate and satisfactory. We think it failed to meet these requirements.”

Peoples Telephone Exchange v. Public Service Commission, 239 Mo. App. 166, 186 S.W. (2d) 531.

The record before us shows, and without any contention by Union to the contrary, that Public Service and Central have for many years been ready, able and willing to render adequate regulated service to the residents of the area. There is a complete absence of proof that any additional service is required or desirable.

In view of the above we must and do conclude that PUC, in ordering that:

“Public convenience and necessity require that Union be * * * authorized to distribute electricity nonexclusively in the uncertificated and unincorporated portions of the territory described in appendix A (the area)” arrived at a conclusion which is not in accordance with the evidence, but contrary thereto, contrary to its own findings as set forth above, and contrary to fundamental principles governing public utility operations. Public Service and Central having served the area long prior to Union’s incorporation have at great expense acquired valuable rights to serve the area, all in conformity with law and with the approval of PUC, and PUC cannot deprive them of their rights nor curtail or limit them in exercising their rights to extend and expand their services in the area so long as such expansion does not impair or endanger service to others or other areas entitled to their service.

Public Service and Central should be permitted to extend their lines in the area in order that they may perform their duty to the public, utilize their property for the purposes to which it has for years been dedicated and without restrictions by PUC predicated on alleged rights of Union claimed by it to have been acquired during its operations prior to gaining public utility status.

As a necessary corollary to the above, PUC has no authority to grant to Union any rights of extension in the area except upon application and proof of the fact that adequate service is not readily available from Public Service or Central and that public convenience and necessity requires that Union render the service requested.

The judgment of the district court is affirmed in part and reversed in part, and remanded with directions to refer the matter back to PUC for further proceedings and orders in conformity with the views herein expressed.

Mr. Chief Justice Sutton, Mr. Justice Doyle and Mr. Justice Moore dissent.